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Two-stage auction and subscription pricing for awarding monopoly franchises

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  • Hung-po Chao

Abstract

This paper examines an efficient market organization for awarding monopoly franchises to assure investment efficiency and revenue sufficiency under conditions of increasing returns. A two-stage auction design achieves ex ante and ex post efficiency by ensuring that the firm with the best technology will be selected, and after winning, the firm will operate at the least cost and price at the marginal cost. Priority-differentiated subscription service fosters self-revelation of demand functions and facilitates fixed cost recovery. With known demand functions, a linear subscription price schedule based on the beneficiary-pay principle achieves efficient fixed cost recovery. With unknown demand functions, a two-part subscription price menu based on nonlinear Ramsey pricing attains an incentive-compatible, second-best result. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Hung-po Chao, 2015. "Two-stage auction and subscription pricing for awarding monopoly franchises," Journal of Regulatory Economics, Springer, vol. 47(3), pages 219-238, June.
    • Handle: RePEc:kap:regeco:v:47:y:2015:i:3:p:219-238
    DOI: 10.1007/s11149-015-9273-3
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    Cited by:

    1. Chao, Hung-po & Wilson, Robert, 2020. "Coordination of electricity transmission and generation investments," Energy Economics, Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Franchise bidding; Multi-dimensional auction; Two-stage auction; Subscription pricing; Increasing returns; Fixed cost recovery; C7; D2; D4; D8; L1;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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